How to set a plumbing labour rate that actually covers your costs

Step 1: Add up your annual overhead

Overhead is everything the business spends that isn't direct labour or job materials. For a plumbing company, the usual lines are:

• Office and administrative wages (dispatch, customer service, bookkeeping).
• The owner's market salary for the work they do.
• Rent or the cost of a shop and yard.
• Vehicles: payments or depreciation, fuel, insurance, maintenance.
• Tools and equipment, including drain cameras and jetters.
• Insurance: liability, vehicle and any others you carry.
• Software, phones and internet.
• Marketing and advertising.
• Accounting, legal and professional fees.
• Licences, permits, association fees and training.
• Bank charges, interest and payment-processing fees.

Use last year's actual spending, adjusted for anything you know is changing. If you are adding a truck or a hire this year, include it now.

Step 2: Work out the true cost of each plumber

Direct labour is more than the hourly wage. For each plumber, add:

• Gross wages for the year, including overtime.
• Employer payroll costs and your provincial workers' compensation premiums; your accountant can confirm the current amounts.
• Benefits, if you offer them.
• Paid holidays, vacation and sick time.
• Paid training and certification time.

Divide by the hours paid to get a burdened cost per paid hour. For many companies this is well above the posted wage, and that gap is where rates set from wages alone start to fail.

Step 3: Count billable hours honestly

This is where most labour-rate calculations go wrong. Billable hours are the hours you actually charge customers for, not the hours on the timesheet.

Start with paid hours per plumber, often about 2,000 a year for full time with some overtime. Then subtract:

• Driving between jobs that you don't charge for.
• Supply-house runs and shop time.
• Callbacks and warranty work.
• Estimates that didn't become jobs.
• Training, meetings and paperwork.
• Holidays, vacation and sick days (if not already removed).

Check the result against your invoices: total hours billed last year divided by the number of plumbers. If your invoices say 1,250 hours per plumber and your calculation said 1,700, believe the invoices.

Step 4: Set your target profit before you calculate

Profit is a cost of staying in business: it funds new trucks, slow months and the owner's eventual retirement. Choose a net profit margin target before you calculate, not after. The rate then has to deliver it.

The formula

1. Total cost to cover = annual overhead + total direct labour cost
2. Cost per billable hour = total cost to cover ÷ total billable hours
3. Labour rate = cost per billable hour ÷ (1 − target net margin)

Materials are priced separately with their own markup, which covers ordering, handling, warranty risk and the money tied up in stock.

Worked example 1: a two-plumber shop

An owner who also works in the field, one employed plumber, a part-time office person.

Total cost to cover is $352,000. Cost per billable hour is $352,000 ÷ 2,200 = $160. The labour rate is $160 ÷ 0.88, about $182 an hour.

If this shop charges $135 an hour, it loses roughly $25 on every billed hour before profit is even considered, and it will feel busy and broke at the same time. Notice the owner's low billable hours: time spent quoting and answering the phone is real, and it pushes the rate up.

Worked example 2: a six-plumber service company

Total cost to cover is $1,356,000. Cost per billable hour is about $167. The rate is $167 ÷ 0.85, about $197 an hour.

Now the useful part. If the company lifts billable hours to 1,450 per plumber, through tighter dispatch and fewer callbacks, total billable hours become 8,700 and the cost per billable hour drops to about $156. Better operations can be worth as much as a price rise. That is why our systems and operations service sits beside pricing.

Turning the rate into flat-rate prices

Most residential customers want a price before work begins, not an hourly meter. Once you know your rate, build flat-rate prices task by task:

1. Standard time. How long the task really takes, from your own job history, including setup and clean-up.
2. Labour price. Standard time × labour rate.
3. Materials. Parts at your markup.
4. Allowance. A modest buffer for common complications, such as seized shut-offs or awkward access.
5. Round to a clean, presentable figure.

Start with your 40 to 80 most frequent tasks. For larger choices, such as water heater replacements, present two or three options. Your licensed plumbers decide what work a job needs; the price book only prices it.

Present the whole price

How you present a price matters as much as the number. Show the full amount the customer will pay. The Competition Bureau's drip pricing guidance warns against advertised prices that leave out mandatory fixed fees, so if a trip or diagnostic charge is unavoidable, include it in the price you advertise. Read the Bureau's page for the detail; this is a summary, not legal advice.

Common mistakes

• Using paid hours as billable hours. The most expensive error on this list.
• Leaving out the owner's salary. The business then looks profitable only because the owner works for free.
• Forgetting vehicles. A van is often one of the largest overhead lines per plumber.
• Never revisiting the rate. Wages and insurance rise every year; a rate set three years ago is a discount you didn't decide to give.
• Raising prices without preparing the office. Give the person on the phone an honest, confident explanation of what the price includes.
• Discounting to win price shoppers. The customers who choose you only on price are often the first to leave.

What to do this week

1. Pull last year's profit and loss statement and list your overhead.
2. Calculate the burdened cost of each plumber.
3. Count billable hours from your invoices.
4. Pick a target margin and run the formula.
5. Compare the result with what you charge today.

If the gap is large, our pricing and profit consulting can help you close it in stages, and the owner scorecard guide shows how to track revenue per billable hour every week. To go through your numbers together, call, text or email.